Singapore Airlines is majority owned by the Singapore government. Alitalia is privately owned. So which country’s airline industry is better described as “capitalist”, Singapore or Italy?
Free market economists like myself tend to be opposed to government ownership. That’s not because there’s anything inherently wrong with government ownership per se, but rather because governments that own companies tend to also do other bad things, like erect barriers to entry or subsidize production. (First class US postal service is an example of both mistakes.)
On the other hand, if a government does not protect its state-owned firm from competition, and does not subsidize the firm, then there’s really no problem with government ownership. You still have a free market. Indeed there may even be cases where public firms can provide a service cheaper than private firms. Some claim that to be true of title insurance in Iowa, which is provided by a state-owned firm. (I don’t know enough to comment.)
The Singapore government does not protect Singapore Airlines from competition, and they do not subsidize the airline. They instruct it to operate like a normal firm, earning a profit and competing with other airlines. It’s technically state-owned but functionally private. In contrast, Alitalia is technically private, but occasionally receives bailouts from the Italian government.
Tyler Cowen recently linked to a Matt Bruenig article entitled:
How Capitalist Is Singapore Really?
Here’s an excerpt:
Then there are the state-owned enterprises, which they euphemistically call Government-linked Companies (GLCs). Through its sovereign wealth fund Temasek, the Singaporean government owns a large share (20% or more) of 20 companies (2012 figure). Together these companies make up 37% of the market capitalization of the Singaporean stock market. The state also owns a large share of 8 real estate investment trust (REIT) companies (2012 figure), which they call GLREITs. The value of the GLREITs make up 54% of the country’s total REIT market.
The sovereign wealth fund Temasek doesn’t just own domestic assets. It also is invested broadly throughout the world, especially in other Asian countries. In March of last year, Temasek had a net portfolio value of S$275 billion, which is equal to around 62% of the country’s annual GDP. To put this figure in more familiar terms, Temasek’s total holdings are equivalent to if the US government built a $12.4 trillion wealth fund.
Call me old-fashioned, but I don’t generally associate state ownership of the means of production with capitalism.
There are two issues here. One is the nature of Singapore’s state-owned firms, which I’d argue are usually pretty capitalist. The second is the question of sovereign wealth funds. I’d argue that if the alternative is a fiscal regime like we see in America, Europe or Japan, then sovereign wealth funds are the lesser of evils. I’d much rather my government be a high saver that was prepared to meet the fiscal challenges of the 21st century, than one that ran chronic budget deficits and had a Social Security system that was basically a vast unfunded Ponzi scheme.
Singapore is certainly not a libertarian ideal. The citizens are forced to save for their retirement and future health needs. But I see that as a lesser of evils compared to a regime where people are forced to pay taxes for the current needs of older citizens, and are given the (false) impression that these taxes are some sort of pension contribution that the government is setting aside for their future needs.
The article also mentions the fact that the Singapore government owns most of the country’s land. Again, that’s not ideal. But it’s worth noting that the Singapore government has in some ways behaved like a hyper-capitalist landowner. They’ve recently created more new land (proportionately) than any other country in the world. Land in Singapore is very valuable, and like any good profit-maximizer they take advantage of that fact. I don’t see that being done in other areas where land is valuable (like New York and LA.) Correct me if I am wrong, but I’d guess that’s because government regulations prevent new land formation in much of the coastal US. So again, in terms of land production you could argue that Singapore is one of the most functionally capitalist countries in the world. That’s not to say things are perfect, I’d like to see both the US and Singapore governments privatize a large share of their vast landholdings.
The article ends as follows:
Singapore (and Norway, among others) shows that it is quite possible to collectively own the means of production while also using price systems to assist in the allocation of productive factors. This is what market socialists have been saying for a hundred years.
If I’m right that Singapore is functionally capitalist, then this sort of “market socialism” is not likely to lead to any of the other goals that socialists may have in mind. Thus, for instance, Singapore has a rather unequal distribution of income. Companies are run for the benefit of shareholders, not workers. Singapore may not be a libertarian ideal, but it even further from being a socialist ideal.
PS. The red areas show that Singapore has recently expanded by about 25%:
READER COMMENTS
Nicholas Weininger
Mar 14 2018 at 8:10pm
Note too that Singapore is among the very few countries that can credibly commit not to bail out a state-owned enterprise, and this is probably in large part because its one-party system is not subject to the interest-group dynamics that beset essentially all modern democracies.
The overall lesson of the phenomena Bruenig cites seems to be “you can get away with a good deal of socialist behavior as long as your government officials don’t stand in the way of the accumulation of great private wealth, AND are above party politics and thus basically unaccountable to the people.” That is an uncomfortable lesson for most Western political tendencies (though I’m sure the CCP loves it!), but it is certainly not what one would call “progressive” or “leftist” or “democratic socialist” in any of the ordinary senses of those terms.
Mark Z
Mar 14 2018 at 8:39pm
“Singapore (and Norway, among others) shows that it is quite possible to collectively own the means of production while also using price systems to assist in the allocation of productive factors. This is what market socialists have been saying for a hundred years.”
This is just wrong. Per Scott’s airline example, Singapore doesn’t ‘sown the means of production’, in the sense of monopolizing the means of production in a given industry. Rather, they own one firm, and they let private firms exist and compete, thereby letting privately owned firms dictate pricing and allocation of resources, yielding a result that is… effectively the same as if Singapore had privatized its airline industry and allowed the market to be fully private (would it be correct to speculate that if Singapore did indeed privatize, it would not significantly change things?).
In other words, Bruenig is celebrating a *slightly* socialist system because it yields results that approximate what free markets yield… by leaving the system mostly to the market anyway.
Which brings me to the question, why not privatize the government airline? Inasmuch the government has any association with it (tacit guarantee of a bailout?) it causes harmful distortions.
This all seems to have been well-covered by the great socialist calculation debate. Perhaps the motto for modern ‘market socialists’ should be: “socialism works almost as well as capitalism as long as it lets capitalists do most of the work.”
Kevin L Guo
Mar 14 2018 at 10:02pm
A comment about the housing situation. From wikipedia, a 2007 government constructed flat in Singapore would be sold to singapore’s own citizens at a 25% discount from its free market resale value. In contrast, NYC allocates low income housing at a 50-75% discount from free market value to favored interest groups such as artists. The goverment of Singapore also has a financial interest to construct as many new houses as possible, unlike the government of NYC. As a result waiting lists are over 2x as long for public housing in NYC vs Singapore (4 vs 8 years).
So is it worse for the government to monopolize the housing industry but otherwise run it like a for-profit business, or is it better for the government to centrally allocate public housing by “need”?
ChrisA
Mar 15 2018 at 12:41am
Another point, state control of Singapore’s economy has worked out quite well, but that is picking a sample of one, lets expand the sample to the rest of South East Asia. Heavy central control is a highly fragile system of running your economy.
david
Mar 15 2018 at 1:23am
Singapore Airlines does receive an implicit subsidy in the form of generous land use planning, extensive land reclamation work with its use in mind, diplomatic intervention to obtain airspace usage, and notably direct government intervention in trade union negotiations, including using expulsions of residency permit holders to remove strike leaders – surely a service the corporate entity finds useful.
http://news.bbc.co.uk/2/hi/asia-pacific/3676881.stm
Flag carriers remain highly sensitive in APAC however, someone degree of intervention is obligatory for survival
Scott Sumner
Mar 15 2018 at 1:40am
Nicholas, Partly agree, but I’m not sure the CCP loves the Singapore model, as they are moving in the opposite direction. Singapore’s government must face the voters. The CCP seems increasingly terrified of the voters.
Mark and Kevin, Good comments.
Chris, I agree that state control is hard to make work. I would not even call the Singapore system “state control”, as the system is a relatively free market. The term “state control” has connotations that go beyond being a passive investor in various firms. It suggests barriers to entry, subsidies, price controls, interference in management, etc.
Jerry Brown
Mar 15 2018 at 3:17am
Singapore seems like a land of contradictions as far libertarian ideals. It actually sounds very authoritarian as far as anything that matters to the government. Capitalist (sort of) where it suits the government, and socialist sort of, but only where it suits the government. And not that much respect for individual liberty or rights, including property rights. There used to be a name for that kind of system.
It is not a system that I want my government to try to emulate. Even if it might realize some efficiencies.
Iskander
Mar 15 2018 at 8:35am
Singapore definitely sounds more neoreactionary than socialist.
I saw someone on twitter point out that the Singapore government is the closest thing existing to Marx’s “committee for managing the common affairs of the whole bourgeoisie.”
Isn’t government ownership of land preferable to having to resort to other taxes with greater dead weight losses?
mike davis
Mar 15 2018 at 9:46am
Sorry to hijack the post for a comment on global warming but the map is a nice reminder that coastlines are not fixed, immutable objects. If you, like me, are convinced that sea level is rising (I just don’t know by how much), you also need to understand that coastline mitigation happens everyday. Global warming is a much bigger problem for poor people in Bangladesh than it is for rich people in Singapore. Surely a big part of the solution is to make Bangladesh rich. Singapore used to be poor. It can be done.
RPLong
Mar 15 2018 at 10:18am
I find Scott Sumner’s position here quite surprising. Where did the money come from for the Singaporean government to buy an airline? Where does that airline’s operating expenses come from? What other uses might that money be put to, were it left in the hands of citizens and not owned and operated by the government?
The argument seems to be, “As long as the Singaporean government uses all its money in the most economically efficient way, then there’s nothing wrong with government ownership of the means of production.” Sure, but how do we know this is actually happening?
robc
Mar 15 2018 at 10:25am
My guess would be that the government believes that the Present Value of the Future Cash Flow from the airline is greater than the price they could sell it for.
Or, to match it, they would have to turn around and reinvest the money they get from privatization in…something like an airline.
Scott Sumner
Mar 15 2018 at 11:40am
David, Not sure I’d call those subsidies.
Meets
Mar 15 2018 at 12:32pm
My instinct on this is to say “ok fine, let’s be like Singapore and Scandinavia!”
As long as private contracts, property, markets and competition are respected, then there isn’t much to disagree with “socialists”
Craig
Mar 15 2018 at 1:05pm
Don’t forget expanding upward! That’s the tragedy of US cities, people want to live there, but they don’t increase housing.
Manhattan, down 30% since 1910. (down 7% since 1960)
Singapore, up 241% since 1960.
For a good discussion of “vertical roads” and other considerations with building, see Russ Roberts & Jason Barr.
Quite Likely
Mar 15 2018 at 1:16pm
What’s your problem with funding social security out of current tax revenue? That seems hugely more sensible than any sort of savings program that tries to guess about what level of investment will be needed to fund a program decades in the future. It’s no more a ponzi scheme than any other annual state expense.
Seth
Mar 15 2018 at 1:31pm
Singapore does seem to be an example of the benevolent dictator, who understands the knowledge problem.
Does Nicholas explain how that idea persists there (with the one-party system)?
I’d like to know more about where that idea came from and how it persists.
I recall Harford’s description of Singapore’s health care system where they have gov’t option and private options for medical care. While there is forced (and subsidized) savings for health care, the underlying tenet is to empower individuals to make medical care purchase decisions and give them choices.
It amazes me how different that is from the one-size-fits-all approach we seem to want.
Also, here there seems to be antipathy to empowering individuals to make those choices.
Scott Sumner
Mar 15 2018 at 2:10pm
Jerry, I think we should cherry pick the good parts of Singapore’s policy regime. The very low taxes, the free trade, the health savings accounts, the fully funded social security system, etc.
Mike, Good point.
RPLong, I think you missed the point. I see this as a lesser of evils. As long as governments are going to have vast social insurance schemes, it’s best if they are thrifty like Singapore, and not reckless like the US or Greece.
But yes, I’d prefer they hold a smaller share of Singapore Airlines, and bigger shares of foreign airlines.
Mark Z
Mar 15 2018 at 3:29pm
Quite Likely,
“What’s your problem with funding social security out of current tax revenue? That seems hugely more sensible than any sort of savings program that tries to guess about what level of investment will be needed to fund a program decades in the future. It’s no more a ponzi scheme than any other annual state expense.”
For one thing, doing so unmoors expenditure from revenue. Your last sentence is just the point: most state expenses are more like ponzi schemes than the few that are (supposed to be in theory at least) strictly funded by their own revenue, in that today’s beneficiaries benefit at the expense of future taxpayers on whom the burden of today’s deficits fall.
Scott Sumner
Mar 15 2018 at 8:23pm
Quite likely. If it’s not a Ponzi scheme, what would happen if the program were ended tomorrow?
If we don’t know what the future will look like then a fully funded system is much safer than an unfunded system like ours. It’s also better for economic growth, as it leads to higher levels of investment.
Matthias Görgens
Mar 15 2018 at 10:56pm
I’m an expat in Singapore. One of the best places to live in the world, if you still have to work for your money.
Singapore’s electoral democracy doesn’t seem that robust, but it’s hard to know for sure how much the system is biased: the government is genuinely doing a good job and would fare well in proper elections too.
Living here is ridiculously nice even compared to eg Scott’s new favourite home of California.
Singapore should probably be described as neoliberal: ie the government is in control of some things, but mostly lets the market get on. (Much, much more so than eg the nanny state of New South Wales, which might not own as many companies, but has much more invasive regulations.)
Almost all the land there that’s nominally in private hands is actually only leased out for 99 years.
Property rights are as respected or more as in any other country I’ve seen.
If memory serves right, Singapore’s rulers got the idea for the current free market system from Hong Kong. When Singapore was newly independent and still really poor, Hong Kong was already doing quite well—in a similar enough situation to draw parallels.
Matthias Görgens
Mar 15 2018 at 10:56pm
I’m an expat in Singapore. One of the best places to live in the world, if you still have to work for your money.
Singapore’s electoral democracy doesn’t seem that robust, but it’s hard to know for sure how much the system is biased: the government is genuinely doing a good job and would fare well in proper elections too.
Living here is ridiculously nice even compared to eg Scott’s new favourite home of California.
Singapore should probably be described as neoliberal: ie the government is in control of some things, but mostly lets the market get on. (Much, much more so than eg the nanny state of New South Wales, which might not own as many companies, but has much more invasive regulations.)
Almost all the land there that’s nominally in private hands is actually only leased out for 99 years.
Property rights are as respected or more as in any other country I’ve seen.
If memory serves right, Singapore’s rulers got the idea for the current free market system from Hong Kong. When Singapore was newly independent and still really poor, Hong Kong was already doing quite well—in a similar enough situation to draw parallels.
Matthias Görgens
Mar 15 2018 at 11:02pm
Apropos inequality: yes, it does exist in Singapore. But a lot of government policies are there to help poor people without choking off the economy.
For example the government pays poor migrant workers from eg the Indian subcontinent to build rails and roads here. So that poor Singaporeans can enjoy a ride on the frequent and clean public transport, and get to work or just around town for often less than a dollar.
Similar for the public housing (HDB). They allow people from even poorer countries to work here temporarily to build them, and then all Singaporeans can enjoy the housing supply.
(Free migration would be even better, but at least getting a job for a few years is better than the alternative of no job for the foreigners and no public infrastructure for the locals. I’m here on a different visa program for skilled workers they would like to properly integrate into the country and perhaps even make citizens one day.)
Matthias Görgens
Mar 15 2018 at 11:02pm
Apropos inequality: yes, it does exist in Singapore. But a lot of government policies are there to help poor people without choking off the economy.
For example the government pays poor migrant workers from eg the Indian subcontinent to build rails and roads here. So that poor Singaporeans can enjoy a ride on the frequent and clean public transport, and get to work or just around town for often less than a dollar.
Similar for the public housing (HDB). They allow people from even poorer countries to work here temporarily to build them, and then all Singaporeans can enjoy the housing supply.
(Free migration would be even better, but at least getting a job for a few years is better than the alternative of no job for the foreigners and no public infrastructure for the locals. I’m here on a different visa program for skilled workers they would like to properly integrate into the country and perhaps even make citizens one day.)
ChrisA
Mar 16 2018 at 1:45am
Scott – I agree that Singapore’s leaders have not interfered as much as they could in their economy, but I think that they are definitely authoritarian in that they could have if they wished. So in that sense the Singapore people are lucky in that they got that version of authoritarianism rather than the other one. To put it another way – you can’t assume from just the Singapore experience that an authoritarian way of ruling is effective without considering the other examples. But I know we agree on this.
On the question of raised by Mike above on defenses against sea rise, actually river deltas like Bangladesh Ganges delta are highly resistant to sea rise because the delta is a dynamic environment where silt is continually being deposited and washed away. So the delta rises with sea rise. The sea has risen over a hundred meters since the last ice age and the Ganges delta is still in the same place (you can easily google lots of research on this). Areas that will have more problems are those, like Miami where the water table is in communication with the sea due to high porosity of the substrate. So you can build barriers but the sea pushes up the water table anyway. But there again there is a natural defense because vegetation and other organic growth can raise the surface over time, if it is allowed to do so and the flooding isn’t too fast. But this is a relatively small area of the world. More usual is like the Netherlands where just putting in sea barriers is enough and large areas inside the barriers can be below sea level. The Dutch built these barriers when they were much poorer and less technically sophisticated than any modern country today so I am pretty sure we can do this in other parts of the world as well if needed.
mbka
Mar 16 2018 at 3:44am
Scott,
the problem is that you usually can’t get the cherries out of the cake unless you buy the other parts of the cake. The entire Singapore policy system was build so that the components would mutually support each other. Many policies wouldn’t be transferable to “the West” without also transferring their political and cultural enablers, or alternative financing schemes.
For example, direct income taxes are low, but as pointed out, most land is leased out as 99 year leases. Assuming average 50 year tenure per generation, that’s an implied 49.5% inheritance “tax” on that “property”. Cars are taxed at 100%, plus a (currently) ca. US$30,000 licensing fee. Real estate licence and transfer fees abund. Alcohol and cigarettes are highly taxed. Social security is not counted as a “tax” as it is in the US because it counts as savings, currently mandated at 37% of total wages. Wage ceilings apply on this, and we are seeing the start of supplementary retirement insurance based schemes because government deems that the CPF savings plans will prove insufficient for most, thanks to the high life expectancy. Sometimes it’s a matter of definitions too: neither social security nor inheritance of property involve “taxes”, but there are clear expenditures to the citizen here.
Very importantly, due to the rising median age, the government already prepares for future tax increases. A lot of what Singapore was until now was driven by demographics. Median age was 34 in 2000. It is 40 now (don’t believe Wikipedia on that, I got these numbers from Singstat). Once it is around Germany’s or Japan’s 47, Singapore’s health care and social security cost and tax structure will look very different too. According to this year’s budget debates, the VAT (currently 7%) will need to rise to at least 9% in the near future, and other tax increases have been mulled (e.g. to start taxing capital gains, currently untaxed).
Now, Singapore governance clearly works well, but once you get down to the nuances you realize it’s not built on miracles either. It’s a different set of tradeoffs.
Prakash
Mar 16 2018 at 6:15am
@mbka
2 things – I don’t get the inheritance tax analogy for the leasehold expiring. Isn’t it transparent enough that people know that they are buying a lease that has only say 30 years left on it?
For the future concerns – What percentage of the government’s budget comes from or could come from Temasek dividends? Wasn’t that the whole point of having a SWF?
RPLong
Mar 16 2018 at 11:42am
Prof. Sumner, yes, in the abstract it’s better to be thrifty than spendthrifty. Your exact words were that Singapore is in fact functionally capitalist. I think that statement is far too strong.
Maybe all you really meant was that, if you gotta regulate, regulate with policies more like Singapore’s at government ownership rates more like America’s. If so, I think you could have made this point without calling Singapore’s crown corporations “functionally capitalist.” In my view, this needlessly creates confusion about capitalism.
Alan Goldhammer
Mar 16 2018 at 12:54pm
Isn’t the real question does Singapore really need their own airline? Airlines have traditionally been boom/bust businesses. Warren Buffett once called US Air one of his worst investments. Southwest was hugely profitable when they hedged jet fuel ahead of everyone else and of course pioneered the no-frills approach that everyone else is copying.
One other thing, how big is Singapore Air? Are they the size of Emirates in terms of mileage and cities served? If one looks at consolidation of international carriers, there are not that many independent ones left. Can Singapore sick around?
Scott Sumner
Mar 16 2018 at 2:29pm
Everyone, Thanks, very informative comments.
mbka, I mostly agree, but would distinguish between forced saving and a “tax”, but I suppose it’s a matter of degree. (Perhaps that’s because I wouldn’t personally mind forced saving, but I don’t like being taxed.) They also have very different effects on the incentive to work.
A 9% VAT is still very low.
RPLong, My point is that all governments heavily intervene in the economy. If Singapore is not capitalist than capitalism does not exist. Even HK’s government is heavily involved in the property sector.
Kevin E
Mar 16 2018 at 9:00pm
Thank you for your article Scott!
A few other things that are inaccurate about Matt’s article.
1) Despite what he says, HDB is not some beloved institution. Many Singaporean see it as corrupt. Housing in Singapore is insanely expensive and the HDB is driver of that. Most people that I spoke to believe that government officials are getting rich off HDB.
2) As you mentioned, Matt glosses over the fact that inequality in Singapore is a pretty bleak picture. This is anecdotal but I walked by a high rise construction site there once at night. I peaked in to see 10 or 12 Indians/Bengalis sleeping on the ground. I asked a local about this and they said, “yes, they are imported to do construction, treated terribly and once the project is done, they have to go home.”
3) With the state-owned enterprises, to the average Singaporean these are just ways for corrupt government officials to make themselves rich. Just google “Singapore Airlines Corruption”, you will find plenty of stories of officials getting caught skimming money out of the company. These are not some beloved socialist institution run by a workers’ council. Also remember the press is censored there so most of the stories never surface.
4) Singapore has no minimum wage. Conveniently absent from Matt’s narrative.
5) For any progressive in America, you would be appalled at the racism in Singapore. Chinese and White Europeans are the elites. Everybody else is looked down upon. Indians, Bengalis, Africans and darker skinned asians (Malays and Filipinos) mostly live like second class citizens.
I completely agree that Singapore is not some kind of libertarian paradise. I personally believe you can’t have a libertarian paradise in a place that doesn’t have protections for personal liberty as well as economic liberty. What was the last movie filmed in Singapore? Saint Jack [1979]. After that they banded anybody from making a movie there. Try to get a hold of a copy of Saint Jack in Singapore or try to declare it on your customs form…
Jeff
Mar 17 2018 at 7:05am
Saint Jack is available on YouTube for anyone who wants to watch it.
philemon
Mar 17 2018 at 11:03am
@Kevin E
Singapore is *not* a libertarian paradise. But seriously, google “list of Singaporean films wikipedia”.
mbka
Mar 18 2018 at 4:23am
Kevin E,
lots of ridiculous claims. One could make reasonable critiques of the way Singapore is set up as a system but you are throwing the baby way out of the bathwater. For starters the current president of the republic is a Malay woman. So there goes your 5). On your 1) and 3), whatever public perception about government officials you may read in social media is about as smart and “accurate” as stuff you may read in similar media in the US. This is even worse than hearsay. Example, how does HDB drive the housing costs up when in fact they deliver the cheapest housing in town, subsidized exclusively for Singaporeans? Quite the contrary, the HDB system shields Singaporeans from the volatile open market. A subsidized HDB flat, built to order for a young family, would come in at maybe US$ 200,000. That’s 1/3 to 1/5 of the cost of a similar size private condo. If it’s on the secondary market and not subsidized, it’s still about 1/2.
Prakash:
on the inheritance tax analogy for the leasehold: you have to buy the whole 99 year lease in advance. At the end of the lease, your big lump of money has not appreciated, but decayed to zero. So you can either call it a very cheap rental, or a property with a value that decreases over time instead of appreciating. Hence my analogy.
Ken S
Mar 18 2018 at 1:28pm
The US government has a 35% (temporarily 21%) corporate income tax. So, they get the same ownership benefits without any of the risk. Pretty good deal, for them.
Comments are closed.